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Intermarket network externalities and competition: An application to the media industry

Author

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  • Jorge Ferrando
  • Jean J. Gabszewicz
  • Didier Laussel
  • Nathalie Sonnac

Abstract

Intermarket network externalities occur when the utility of a good produced in a given industry varies with the size of the demand for a good produced in another. A particularly significant example of this phenomenon is provided by the interaction between the media and advertising industries. Media consumers vary according to their willingness to pay for a media good, which depends on the advertising volume. In the advertising market, advertisers vary according to their willingness to pay for an advertisement, which also depends positively on the audience reached. We model a situation of competition between two content providers who are rivals in both the media and advertising industries, choosing simultaneously the newspaper prices and the advertising rates. We characterize the equilibria of the game and explore how they depend on audience attitudes towards advertising. Our main finding is that two‐sided interactions may induce exit by one of the media companies from either only the advertising market or both markets.

Suggested Citation

  • Jorge Ferrando & Jean J. Gabszewicz & Didier Laussel & Nathalie Sonnac, 2008. "Intermarket network externalities and competition: An application to the media industry," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(3), pages 357-379, September.
    • Handle: RePEc:bla:ijethy:v:4:y:2008:i:3:p:357-379
    DOI: 10.1111/j.1742-7363.2008.00084.x
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    Cited by:

    1. Simon P. Anderson & Bruno Jullien, 2015. "The advertising-financed business model in two-sided media markets," Post-Print hal-02866192, HAL.
    2. Charlie Karlsson & Robert G. Picard, 2011. "Media Clusters: What Makes them Unique?," Chapters, in: Charlie Karlsson & Robert G. Picard (ed.), Media Clusters, chapter 1, Edward Elgar Publishing.
    3. Koharu Nakao, 2024. "Peer-to-Peer Sharing in the E-Commerce Market," Discussion Paper Series 277, School of Economics, Kwansei Gakuin University.
    4. Tanja Greiner & Marco Sahm, 2011. "How Effective are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets," CESifo Working Paper Series 3524, CESifo.
    5. Elias Carroni, 2018. "Behaviour-based price discrimination with cross-group externalities," Journal of Economics, Springer, vol. 125(2), pages 137-157, October.
    6. Karlsson, Charlie & Rouchy, Philippe, 2013. "Media clusters and metropolitan knowledge economy," Working Paper Series in Economics and Institutions of Innovation 328, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    7. Yongrui Duan & Yao Ge & Yixuan Feng, 2022. "Pricing and personal data collection strategies of online platforms in the face of privacy concerns," Electronic Commerce Research, Springer, vol. 22(2), pages 539-559, June.
    8. Lioudmila Savtchenko, 2010. "Foreign devaluation as a coordinating device of heterogeneous investors: A game‐theoretic analysis of financial contagion," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(2), pages 195-204, June.
    9. E. Carroni & D. Paolini, 2019. "The business model of a streaming platform," Working Paper CRENoS 201902, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    10. Reisinger, Markus, 2012. "Platform competition for advertisers and users in media markets," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 243-252.
    11. Carroni, Elias & Paolini, Dimitri, 2020. "Business models for streaming platforms: Content acquisition, advertising and users," Information Economics and Policy, Elsevier, vol. 52(C).
    12. Takashi Komatsubara, 2008. "Equilibrium Selection In The Yano Model Of Price Leadership," Pacific Economic Review, Wiley Blackwell, vol. 13(5), pages 649-655, December.
    13. Guillaume Roger, 2017. "Two-sided competition with vertical differentiation," Journal of Economics, Springer, vol. 120(3), pages 193-217, April.
    14. Sahm, Marco & Greiner, Tanja, 2016. "How Effective Are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets," VfS Annual Conference 2016 (Augsburg): Demographic Change 145724, Verein für Socialpolitik / German Economic Association.

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